Prime Highlights:
Bowman stated that further interest rate cuts are contingent on seeing more progress in inflation reduction.
While Bowman expects inflation to decelerate in 2025, she acknowledged that disinflation may take longer than hoped.
Inflation exceeded expectations, rising 0.5% month-over-month in January, bringing the annual inflation rate to 3%, higher than the forecasted 2.9%.
Key Background:
Federal Reserve Governor Michelle Bowman emphasized the need for further progress in controlling inflation before considering additional interest rate cuts. In a speech on Monday, Bowman stated that while she expects inflation to continue its deceleration throughout 2025, the pace of disinflation may take longer than anticipated. She stressed the importance of ensuring sustained progress in reducing inflation before the Fed makes any adjustments to its current policy.
Bowman highlighted that the Federal Reserve’s monetary policy is currently in a favorable position, but more data is required to demonstrate continued inflationary progress. “I would like to gain greater confidence that progress in lowering inflation will continue as we consider making further adjustments to the target range,” she said.
Although the overall inflation rate has shown signs of improvement, Bowman noted that rising core goods prices, particularly since last spring, have hindered more rapid progress. She also acknowledged ongoing risks to price stability, citing the strength of the labor market as a factor contributing to these uncertainties. The most recent consumer price index (CPI) data revealed that inflation unexpectedly rose by 0.5% month-over-month in January, surpassing the Dow Jones estimate of a 0.3% increase. This resulted in an annual inflation rate of 3%, which was above the consensus forecast of 2.9%.
At its January policy meeting, the Federal Reserve opted to maintain its target interest rate range at 4.25% to 4.5%, signaling a cautious approach. Bowman noted that this stance allows the Fed to remain patient and closely monitor evolving inflation data. Additionally, she mentioned that the current policy framework offers room to evaluate other economic indicators and assess the impact of fiscal policies. The outlook for interest rate cuts in 2025 has been tempered by concerns over President Trump’s trade policies, which have fueled inflationary pressures. As a result, market expectations for rate reductions this year have been revised downward. Traders are now anticipating only a single quarter-percentage-point rate cut, according to CME Group data.
